The People’s Bank of China, Securities and Futures Commission and Hong Kong Monetary Authority to commence mutual access between the Mainland and Hong Kong interest rate swap markets

In view of the upcoming launch of Northbound trading under SWAP Connect, which will provide mutual access between the Hong Kong and Mainland Chinese interest rate swap markets, the Securities and Futures Commission of Hong Kong, SFC, published a statement on May 5, 2023. Therein, the regulator provides relevant details on the upcoming trading scheme, including information on the eligibility of investors, accommodated instruments, trading, clearing, and settlement arrangements, and current trading and clearing limits. The key details are briefly noted below:
##### Eligible investors
Investors must have signed an „agreement with CFETS [China Foreign Exchange Trade System] for providing price quotation“ and be either a clearing member itself of the Shanghai Clearing House (SHCH) or a client of such. Additionally, Northbound traders must be institutional investors adhering to the requirements of the People’s Bank of China (PBOC) and having „completed filings for participating in the Mainland interbank bond market“. Furthermore, they must have a valid trade permission of the CFETS. Those overseas investors seeking participation in Northbound trading shall apply with „OTC Clear to become its Clearing Member or a client of such a Clearing Member.“
##### Eligible instruments
At the beginning, Northbound trading will only facilitate trading of interest rate swap contracts that are quoted, traded, and settled in Renminbi (RMB).
##### Trading, clearing, and settlement
Treading services will be offered by CFETS and overseas electronic trading platforms authorized by the PBOC. Clearing and settlement services will be provided by the Shanghai Clearing House and OTC Clear.
##### Trading and clearing quota
There will be an limit on the notional value of swaps that may be traded by investors, which will initially be RMB 20 billion. To limit exposure risk of central counterparties, a clearing limit of RMB 4 billion will apply to their respective net positions. Both limits may be adjusted in the future to accommodate investor needs.
The statement also briefly describes the arrangements that have been made by relevant regulators to oversee Northbound trading and the activities of the participating clearing members.